ANALYSIS :- In this era of high volatility in markets, investors look at several parameters before investing in stocks for example EPS, earning growth rate, debt/equity , p/e ratios. These parameters will no doubt help us to select the best companies but beta is one such parameter which can tell us about the returns with the volatility of a particular stock with respect to market. The concept of beta is actually very simple – it’s a measure of individual stock risk relative to the overall stock market risk.
Beta analysis can provide great insights into the movements of a particular stock relative to market movements Before investing in a company’s stock, the beta analysis allows an investor to understand if the price of that security has been more or less volatile than the market itself. In our assignment we have worked on five companies ITC, Dabur,HUL, Nestle, and Britannia and calculated Rate of Return(%), Standard Deviation and Beta value. Result of calculation is below:- PERIOD RATE OF RETURN(%) HUL ITC DABUR BRITANNIA NESTLE NSE(STOCK) Boom period 2003-2008)* Recession (2008-2009)* Recovery(may 2009 onwards)* Expected rate of return(%) 0. 007 2. 148 2. 34 0. 176 0. 072 0. 624 0. 002 0. 033 1. 15 0. 013 0 1. 340 0. 004 4. 211 4. 27 0. 003 -0. 127 1. 82 0. 013 6. 392 7. 76 0. 0192 -0. 055 3. 784 STANDARD DEVIATION (%) Boom period Recession Recovery 0. 87 8. 38 11. 32 0. 070 0. 450 7. 34 0. 084 7. 69 11. 63 0. 122 0 15. 73 0. 767 11. 77 7. 55 0. 097 3. 01 5. 92 BETA CALCULATION Boom period Recession Recovery 0. 628 0. 596 0. 55 0. 459 -0. 011 0. 343 0. 173 0. 53 0. 532 0 0. 103 0. 607 0. 017 0. 154 -. 02246 STOCK ANALYSIS IN BOOMING PERIOD(2002/2003-2008):- As India is a developing economy the country have seen a huge growth in economy during this period. Undoubtedly the FMCG sector also show growth due to global boom. The NSE stock also show the return of 0. 624% with the risk factor of 7. 34%. As we analyse that the during this six years of booming phase Dabur & ITC shows the highest rate of return i. e. 2. 34 & 2. 4 respectively with the risk factor of 11. 32 & 8. 38 respectively. If we analyse the data we can found that the expected rate of return for Dabur is 7. 76%,which is maximum as comparison to all other securities present in the above portfolio. Dabur indicating though the risk is involved but with assured rates of returns though low justified by low beta value stating less volatility with the market that is expected returns does not vary much with change in risk factor this is evident by the fact that during this period Dabur announced issue of 1:1 Bonus share to the shareholders of the company, i. . one share for every one share held. The Board also proposed an increase in the authorized share capital of the company from existing Rs50 crore to Rs 125 crore. Further Dabur rose up to $200 million from the international market through Bonds, FCCBs, GDR, ADR, QIPs or any other securities providing investors with more reliable ground to invest. ITC Ltd in 2003 divested 49% equity in lease plan. The company issued 27792 ordinary share of Rs10 each and this helps to increase in the share capital of the industry as more share holders are willing to invest.
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As a result of this the risk involved in this share increases and reach to 8. 38%. During 2007 ITC has announced dividend rate at Rs3. 10 per ordinary share on fully paid ordinary share of Rs 1 each. During same year they decide to marge with the Britain,s ready to eat company PATAK’s. The value of deal is near about 200million pound. The various financial deal of the company enhances its rate of return but the volataility of share is high w. r. t. market. The valve of beta for this particular phase is 0. 596. STOCK ANALYSIS IN RECESSION PERIOD(MID 2008-MID 2009):-
As an analyst we see that the market is more volatile that the security,as we can easily see that the risk factor of NSE is increased from 7. 34% to 15. 73%. While there is no huge risk involved in any of the five security that are from FMCG sector. The major company of our portfolio hit the during the recession is Britannia since the beta factor of the company changes from 0. 459 to 0. 532 which shows the vis-a-vis change of security due to volatility of market. The rate of return for ITC comes down to 0. 33 from 2. 148% because of economic meltdown.
The HUL rate of return decreases by 28. 57%. HUL in 2007 put through the Rs 630 crore share buyback programme at Rs 207/share. That particular buyback is at Rs 17% premium to the prevailing market price for the stock. In Semptember2008 market share slips quarter in key areas of personal product and skin care. Although the volatility of a market has less impact on the return and the change in beta also decreases shows that there is small change in return as compare to that of market. HUL net dips 1. 8% because of competition,the value of dove,lux hamam & breeze drops to 53%.
NESTLE during the time of recession performs well as compare to all other food company. The profit for the company jumps by 69. 4% as compare to the last year. Nestle stock prices remains constant during the time of recession. The stock price are nearly Rs585 and therefore the variance and the risk involve in this particular security is zero. Nestle although survives well during the disastrous global downturn. The bulk of the shares of this company is holded by the foreign investors and due to the recession this all impact the stock price of the security.
The board is liberal to dividend. An eps of Rs 68/share in 2009 were mostly matched with dps of Rs 48. 5/share. BRITANNIA beta value increases during the time of recession shows that it is the highly volatile security w. r. t. the market. Small change in market value could change this at a countable rate. Britannia was hit by the collapse of U. S. firm Lehman Brothers. The company has invested euro 57. 4 million in the same financial giants. Britannia at the same time reveal that it had to pay euro 19. 8 million to the financial service corporation(FSC).
This might have change the rate of return of the security which dipped by 0. 163%. Britannia also says that it is going for merger with CFS(co-operative financial services). The news might have effect on the security and therefore the risk on the security increases to 0. 122%. STOCK ANALYSIS AT THE TIME OF RECOVERY(MAY 2009 ONWARDS):- After the global downturn Indian economy starts to rebound and the stock has raised the rate of return and turn it as 1. 82%. The company ITC & Dabur has rebounded and there rate of return reach at the ever higher return of 4. 211 & 4. 27% respectively.
But the risk involved in the rate of return increase for ITC,while it decreases for Dabur and dips near about 3. 5 points. But the risk is more in comparison to that of the market. For Britannia and Nestle the rate of return also increases and the risk indulge in this is less as comparison to the market and also with other securities in the portfolio. Beta turns out negative for HUL & Nestle shows that yhe market have negligible impact on this securities,while the beta increases for the ITC proving it as the volatile or aggressive security. HUL goes for various merger during the later half of 2009.
HUL has budgeted a buyback capping the amount at 25% of the equity share capital and free reserves. It will buy the shares paying upto Rs 280/share. Nestle reported net profit of Rs 160 crore in Q1 of 2009-2010. There is total increase in income by 16. 8%. As we are coming back from the global downturn the impact of recession is less in India as comparison to other capitalist economy because of the regulatory body in India and also the various number of securities to invest. Therefore there is less risk is involved during the investment in FMCG securities. PORTFOLIO ANALYSIS:-
For describing the portfolio we have taking five securities in different weights HUL,ITC,DABUR,BRITANNIA & NESTLE. In this part we will calculate the Expected rate of return and Beta. HULITCDABURBRITANNIANESTLEBETAEXPECTED RATE OF RETURN(%) WEIGHTW1W2W3W4W5 PORTFOLIO10. 60. 10. 10. 10. 10. 39221. 43 PORTFOLIO2 0. 50. 20. 10. 10. 10. 39592. 0679 PORTFOLIO30. 40. 20. 20. 10. 10. 35332. 842 PORTFOLIO40. 30. 20. 20. 20. 11. 15922. 0432 PORTFOLIO50. 30. 30. 20. 10. 10. 78353. 4809 PORTFOLIO60. 40. 30. 10. 10. 11. 5872. 7062 PORTFOLIO70. 20. 50. 10. 10. 11. 1953. 977
PORTFOLIO80. 10. 20. 20. 20. 31. 46022. 886 PORTFOLIO90. 30. 10. 40. 10. 11. 4733. 754 PORTFOLIO100. 20. 20. 20. 20. 20. 32182. 847 When we look at the portfolio when we have find that as we are decreasing the weight of the HUL the expected rate of return for the portfolio is increasing first but as we look on the 5th portfolio when we have given the equal weight to ITC also our expected rate of return increases and its maximum when the weight of ITC is maximum i. e. portfolio 7th. But as soon as we are increasing the weight of other securities the value of beta is also ncreasing and it is maximum in portfolio 6. From this we can conclude that as our ITC weight is increasing the rate of return as well as value of beta is changing,and hence the volatility also increasing. From the above portfolio we see that that when we are giving equal weightage to all the securities our rate of return is alsogood and the value of beta is also far less then any other portfolio. So we can conclude that the 10th portfolio is better option for the investor to invest with having handsome expected rate of return with less volatile portfolio.